A budgeting process is the first step of the development of a country’s economy. A budgeting process is undertaken to identify and describe the financial resources available for a nation’s use. The budgeting process is undertaken to inform individuals and organizations about the current state of financing for the nation. A budgeting process also helps the government to get a handle on spending and the total debt that is owed by the nation.
A budgeting process is used to develop and monitor programs and projects. The process may include assessments of current programs and evaluating plans to improve productivity. When developing a budget, it is important to set funding objectives and to identify funding sources to achieve those objectives. A budget is often developed using an “if you build it they will come” approach. The budgeting process is used to set goals for the next year and to forecast how much funding must be provided for activities.
The objectives and needs of the organization must be identified and implemented. The budgeting processes for organizations are used to support the long-term management of the organization. The budgeting process supports budgeting, forecasting and reporting requirements of program and project requirements. It is an essential component of a good budgeting process.
A good budgeting process is used to help managers set and to measure budgets. Maintaining consistent and accurate budgets is necessary to understand and meet the budgeting process goals. Budgets are used to determine personnel functions, to establish objectives and to establish and measure budgets. Budgets are also used to facilitate decision making.
An effective budgeting process requires the submission of financial statements along with detailed financial evaluations. The financial statements and other information are used to obtain necessary information to support budgeting decisions. A budget reflects the spending by department and the target date for completing the projects. Financial statements provide information about the financial status of the organization and give an opportunity to make adjustments in budgeting activities.
For most organizations, developing a strategic plan is a prerequisite to developing a budget that meets budgeting goals. A strategic plan can include funding models, resource allocation models, investment estimates, marketing strategies, and operational concepts. The strategic plan is typically prepared by an appropriate committee of the board of directors, usually the CFO or accounting representative, or by management, and presented to the members of the organization for review and approval.
Budgeting is a necessary part of the decision making process and supports budgeting, forecasting and reporting requirements. Budgeting processes require knowledge in management decision making and budgeting practices. Proper budgeting involves the use of all available resources and can be effectively achieved only by knowledgeable and experienced managers. Most importantly, budgets are the basis for long-term decisions regarding the organization’s growth and prosperity. The major benefits of budgeting processes include accurate budgeting, flexible budgeting, accurate forecasting and decision support.
It is important to realize that budgeting process needs to be independent of upper management and subject to regular review by key executives. The primary motivation for such review is to make the budgeting process more effective by removing obstacles that come from within the organization. When properly applied, the budgeting process provides a powerful mechanism for economic planning. Therefore, it should be implemented with great care and thought.
The first step of the budgeting process is to set the organization’s goals. The goals should be clearly defined at the time of setting up the budget. The goal should define the budgeting process and its impact on the organization’s strategic objectives. Defining the goals also provides a sense of direction for the budgeting process. For example, if the purpose of the budgeting process is to reduce customer cost in the short term, cutting costs in the short term may not have the desired long-term benefits.
The next step in the budgeting process involves setting up the budget presentation. The budget presentation is where the budgeting process is made known to the organization, and is done by assigning individual work groups or departments to create a budget package. The budget package consists of five key work group areas: costs and expenses, working capital, profits, and operations. Although these work groups appear fairly broad in nature, each area has an important sub-area and all the sub-areas are crucial in determining the overall budget result.
Finally, budgeting processes should include the accounting department. An effective accounting department helps an organization to monitor and control its finances. A good budgeting process needs to include an accounting team that is made up of knowledgeable, motivated individuals who are willing to work with the other work groups in the budgeting process. By following the above mentioned steps an organization will find that its budgeting processes are more effective and that it has fewer difficulties in achieving its financial objectives.